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7 Reasons Why Businesses Fail and How To Avoid It

October 24, 2016

We cannot only choose to talk about success when covering entrepreneurship. There are far more businesses that are failing than succeeding, so it must be understood why business fail. Although failure seems to be somewhat celebrated in the entrepreneurial community – almost as a rite of passage – nobody likes the feeling of failure. That is money and time wasted on something that you hoped would be successful.

When examining why business fail, there are very specific reasons as to why the failure happened. And these specific reasons are the cause of failure for many businesses. Be it bad planning or bad leadership, the reasons for failure stem from issues that are not new, making them easy to avoid. But people still make these mistakes, sinking their businesses in the process.

What needs to be understood is that business is not for the weak or those who do not operate with an effective plan of strategy. Without a well-designed strategy supported by effective actions, your business will fail no matter how hard you wish for it to succeed.

Listed are the 7 reasons that cause businesses to fail:

1. Operating With A Vision That Is Not Supported by a Strong Strategy

Vision is what you want to happen. Strategy is how you will make it happen. Many business owners confuse the two, which leads to them running a business that has no way to produce their intended goals. It takes more than big goals to produce a successful business. Actions must be produced that lead to the accomplishment of these stated goals.

The strategy is an outline of your goals and actions, but this is just what is written down. Execution of the strategy must be the main priority. This means understanding the necessary actions that will be required to make success a reality. So you must not only understand your business, you must also understand the marketplace you are operating within. This is the only way you can put together a strategy that leads to real results being produced.

Do a SWOT analysis of your business. Understand your strengths and weaknesses so that you can understand what will help you succeed and what will hold you back. Be very knowledgeable about your competition. Understand both their strengths and weaknesses so that you can design a plan of action that enables you to best compete against them. Nothing can be achieved in business without insight, strategy, and execution.

2. Hiring The Wrong People

The people you hire are those who will support your operations and interact with your customers. If they are inadequate with either, you will soon find yourself trying to dig yourself out of a deep hole. This is why must people are slow to hire – they don’t want their business to be

This is why employers are slow to hire – they do not want their business to be in the wrong hands. But when they experience a surge in growth, they are sometimes forced to hire quickly in order to meet demand. This means they will hire people who have academic qualifications but do not necessarily fit in the atmosphere of their business. This leads to hiring someone that will set your business back even further, as you have to fire them and look for their replacement.

The hiring process should be taken very seriously. You need to do background checks to see if an applicant’s work history is legitimate and ask deep questions to gauge their understanding of the requirements of the position being offered. Do not hire someone based on their resume alone; always try to determine if the person would be a great fit through one-on-one interaction.

It is also important to understand that great employees require great pay. If you are not willing to pay the salary required for a stellar employee, then you will have to accept the level of quality you attract to your job opening. You ultimately get what you pay for.

3. Letting Politics Ruin the Business Atmosphere

Office politics are allowed to take place in a big corporate environment, but such behavior kills smaller businesses quickly. This behavior lowers business morale and makes everyone distrust one another. A successful business cannot be produced without any teamwork taking place.

Accountability should be a value that is communicated throughout a business organization. If behavioral standards are not set, then employees will believe they run the business, instead of being employed by the business. This type of thinking is hard to correct when it is set in place, so it is important to suppress it before it even gains strength.

It is the requirement of leadership to be proactive in regards to their business environment. Any clique behavior that is detrimental to the atmosphere in place must be quickly handled. Never show favoritism and treat each employee with the same respect. This helps to show people that the required set of expectations must be met by all employees.

4. Not Trusting Your Team

Business success requires the establishment of trust. If you do not believe that your team has the ability to complete the initiatives that you have established, you will be doing a lot of micromanaging rather than developing your business. Essentially business owners get in their own way. They hire people but do not allow them to do their job.

This leads to resentment being produced and a culture of paranoia. If your employees feel that they are under constant watch, then they will be afraid to do anything because they fear that a mistake will cost them their job. A culture of fear and distrust is one that operates without anything getting done.

If you hire people, then you must trust that they understand how to do their job. It makes no sense to involve yourself in every process because your priority should be on business growth. Allow your managers to manage your employees and allow your employees to do the tasks that support your business’s operations.

5. No Culture of Excellence

Businesses, especially small businesses, have a tendency not to enforce a culture of excellence. Having people operate with excellence means that they understand that their actions have a direct purpose. When there is no standard of excellence in place, people tend to slack off and do whatever they feel. A small business’s success is highly dependent on its ability to satisfy the customer’s needs and wants in order to retain their patronage. This means daily interactions have to be underlined by a shared mindset of always providing high-quality service to everyone who engages with the business. If your customers can sense that you do not care about the quality of business you produce, then they will look to take their business elsewhere.

A small business’s success is highly dependent on its ability to satisfy the customer’s needs and wants in order to retain their patronage. This means daily interactions have to be underlined by a shared mindset of always providing high-quality service with everyone who engages with the business. If your customers can sense that you don’t care about the quality of business you produce, then they will take their business elsewhere.

Make it a requirement that your employees understand your company culture and abide by it. One bad employee can offset all of the good that your business has done. You do not want your reputation to be undermined by the improper actions of bad employees. Get rid of such people immediately before a situation arises.

6. No Target Market Identified

When business owners proclaim that any and everyone is their customer, it is a sign that they do not understand their marketplace. This is a very untrue mindset that is very dangerous to possess. Many businesses fail to attract a loyal customer base because their marketing and messaging practices are too generic.

In order for your business to secure customers, you must have detailed knowledge of the customers that you serve. Identifying your target customers allow you to allocate your time and capital towards those people who fit your preferred customer profile. This eliminates wasted efforts, which negate the business from gaining traction within the marketplace.

7. No Understanding of How to Generate Money

Not knowing how to generate money is a very shocking reason many businesses fail. It is not that their product or service is bad; the problem is that they do not know how to produce sales. No sales means that you have no business. This is an important factor many business owners do not seem to realize.

For some reason, many business owners are afraid of selling and this fear leads to their eventual demise. Their competition could have a product or service of lower quality but the difference is that they are not afraid of the selling process. They understand selling is the backbone of any business. If you do not know how to sell, then your idea of a business will fade away as quickly as the money you invested in it.

Money should not control your mind but it should be what you are actively working towards generating every single day you are in business. You are not running a charity. You are running a business – people have to pay for the value you provide.

A successful small business is hard enough to produce without so many other outside factors adding to the challenge. Don’t make the ability to produce a successful business impossible by having the internal issues which have been outlined above. Take heed of these bad operational habits in order to ensure your business avoids these costly mistakes.